LACKING KEY HUMAN RESOURCES for a growing list of critical projects, project managers are seeking an answer to the wrong question. Instead of asking, “How can I find more resources?” they should be considering, “How can I maximize the resources I already have?”
If you are going for the gold, try digging in what you already have.
Shortages Threaten Profits. Today's growing shortage of skilled knowledge workers, or “gold collar” workers as they are sometimes called, is more than a hot topic among management executives. The inability to find and maintain enough engineers, programmers, systems designers, scientists and chemists is a serious threat to profitability and growth— especially for project-driven organizations in the information technology, pharmaceutical, and professional services industries.
Demand for critical skilled resources exceeds supply in the average development organization by two to three times. Unfortunately, this shortage comes at a time when staffing needs at development organizations are rapidly escalating—driven by unprecedented demand, competition, deregulation, globalization and once-in-a-lifetime forces, such as the Year 2000 crisis.
For example, in the application development organization of a Wall Street investment bank, 900 developers, already overloaded with 1,800 projects, now must contend with massive Y2K compliance issues. Similar imbalances between project demand and resource shortages are delaying new drug development activities at a multinational pharmaceutical firm and worldwide exploration efforts at a major oil and gas company.
John O'Neil is chairman and chief executive of Business Engine Software (formerly Micro-Frame Technologies, Inc.). He served as co-chair for a joint industry/Pentagon committee to modernize management practices in 1992. He has twice been a finalist for the regional Inc./Ernst and Young “Entrepreneur of the Year” award, in 1997 and 1994. Send comments on his article to [email protected].
Dysfunctional Spiral
Exhibit 1. The imbalance between project demand and supply often creates a self-inflicted dysfunctional response in an organization. The result is a pattern of chronic delays, fire fighting and inefficiency. Studies have shown that less than 30 percent of a knowledge worker's time is spent on high-priority, value-adding activities.
Organizations Fall Into “Dysfunctional Spiral.” Ironically, these shortages create a scenario where organizations waste already scarce resources by falling into a “dysfunctional spiral” of overcommitment. In this scenario (see Exhibit 1), the lack of a capacity test weighs down new projects, with key resources caught in bottlenecks. These delays cascade across various projects, creating the need for new “quick fix” projects, further adding to resource overloads. The result is a pattern of chronic delays, fire fighting and inefficiency. Caught in the spiral, knowledge workers may spend less than 30 percent of their time on high-priority, value-adding activities, and the balance coordinating their time. Strategic or mission-critical projects get lost, and key resources are no longer aligned with strategic objectives.
In the past, these problems could be overcome by adding staff. With skilled labor shortages in nearly every labor market, this is no longer possible. In response, project-driven organizations have dramatically shifted their priorities from systems and processes to attracting and retaining the best-skilled resources. They rely heavily on contractors, temporary staff and wholesale recruitment programs, including foreign recruiting. Enterprise megaprojects, such as Enterprise Resource Planning (ERP) and Y2K, are pulled out of the fire by “company heroes” at the expense of other mission-critical projects. Unfortunately, these approaches are “knee-jerk” reactions and do not solve the problem because they cannot ensure that knowledge assets will be used in the most efficient manner on a continuing basis.
A common thread runs through these organizations: They need to make optimum use of scarce resources often critical to strategic initiatives. They must reduce development cycle times and plan requirements for the organization into the future by enabling action in the present. And they need to integrate labor, project and financial planning.
New Tools Needed. New tools are needed to address a development organization's fundamental problem: how to effectively allocate and optimize scarce critical resources. Organizations have otherwise been forced to pursue tedious manual or spreadsheet-based management processes. What's wrong with conventional planning tools? Most are designed to solve somewhat different problems. For example:
Enterprise Resource Planning tools have succeeded in replacing and integrating host-based solutions and the processes they support. Typically, most ERP systems are general-purpose, with a focus on automating back- or front-office operations. As a result, they have not been widely used in development organizations such as new product development or information systems, which tend to be highly distributed, knowledge resource-driven.
On budgeting applications, the annual budget is the lowest common denominator in business planning, and the tools used to develop it focus on categories and line items that do not correlate to the project and labor information required for effective resource allocation. Similarly, Supply Chain Management (SCM) systems focus on the manufacturing and supply chain side of the business. A significant shortcoming of both ERP and SCM is the failure to address many of the specific requirements of project-driven functions.
Project management and project costing systems are invaluable for tracking costs and managing specific projects and teams, but typically fail to provide a complete view of resource demand and supply and an ability to proactively manage these variables. Even in project-intensive organizations, a small portion of the activities that consume resources are captured in a project-planning tool.
The Knowledge Resource Planning Approach.
Given the ineffectiveness of existing tools and processes at balancing the supply and demand of knowledge workers, a new approach is warranted—Knowledge Resource Planning (KRP).
KRP is a collection of cross-functional processes that balance the demand for and supply of knowledge resources, thus ensuring proper resource utilization and enhanced productivity. KRP spans the entire resource life cycle from identification, qualification and prioritization of resource demands (projects, initiatives, maintenance, and so forth) to the identification, classification and quantification of resource supplies (in-house staff, contractors, recruiting).
In many respects, balancing the supply and demand of knowledge workers is similar to balancing supply and demand of inventory from manufacturer to retailer—a process dramatically improved by supply chain planning. KRP applies some of the techniques and technology of supply chain planning to improve the balance of supply and demand of knowledge workers.
While project management is an important component, knowledge resource planning is not about project management. It's about successfully managing knowledge resources and optimizing their utilization across the whole enterprise. KRP permits effective use of key resources so that top-tier knowledge workers are aligned with top-tier programs.
KRP helps organizations answer the following questions:
What percentage of total effort goes to our highest-priority initiatives? ` How many resources could we “free up” to work on an important new project? ` Given our constraints, what mix of projects should we undertake? ` Where in the organization can we find the necessary skills?
What does our entire “portfolio” of projects look like?
What happens to other projects if we add this new one?
The KRP Process. Effective KRP requires information from and linkages to many parts of the enterprise, as outlined in Exhibit 2. Critical components include demand planning, supply planning, and assignment and allocation planning.
Demand Planning. Developing a true model of the entire organizational workload, or demand profile, is the first step toward successful implementation of KRP. Elements of demand include all projects— present and future, planned and ad hoc, which consume resources. Demand-planning information should also include attributes of demand, such as skill levels and special skills required of knowledge workers, due dates and corporate priority of the projects. This demand profile should drive (and be driven by) the budgeting process
Supply Planning. This next key element in KRP is in developing a model of the entire capacity or resource availability of the organization. This includes automation of employee rosters, skills inventories, recruiting and contracting of third-party resources. Sources of supply are distributed inside and outside the organization and can be gathered from department managers, human resources or project accounting systems. The capacity profile should include skills and skill levels, cost rates including inflationary factors and their total availability. Again, the capacity profile both drives and is driven by the budgeting process.
Assignment and Allocation Planning. Once demand and capacity information have been captured, the organization can begin the process of prioritizing and aligning resources with corporate goals. This process also includes personnel/staff planning, team staffing, budgeting and return of investment management.
By combining the organization's total project and nonproject demands and the entire resource capacity in a single enterprise repository, managers and decision-makers have a consistent view of the organization's total demand and capacity. This detailed capacity can be matched against the organization's demand profile to monitor the knowledge resource workload, with a forward-looking view of available resource capacity, idle capacity, overloads and bottlenecks.
There should also be the ability to perform resource assignment and coordination between resource owners and requesters, functions for effort and cost allocation, and capabilities for conflict monitoring and resolution and demand prioritization.
A dynamic KRP system must provide visibility into day-to-day activities and ongoing tracking. The common deficiency of enterprise project management systems is that they rely solely on tracking the project efforts for billing purposes, not for managing the deployment or resources. Effective KRP should employ an enterprise timesheet system that captures all activities that consume resources, whether they were planned activities on a project or a last minute “fire drill.” The resulting information provides visibility into actual hours expended, remaining hours and actual start and finish dates for completed projects.
Reader Service Number 5027
Knowledge Resource Planning
Exhibit 2. Effective Knowledge Resource Planning requires information from and linkages to many parts of the enterprise. KRP software must simply and easily incorporate and update project demand, resource capacity and labor planning information, then provide a powerful analysis and planning “engine.”
Resource Supply/Demand in Balance
Exhibit 3. In response to the imbalance of supply and demand, KRP software arms the organization with the information and tools it needs to keep from being its own worst enemy.
Optimized Project Portfolio
Exhibit 4. The result is a much more optimized project portfolio, with key/strategic projects receiving more resources and the least important projects falling away.
Finally, the system should facilitate demand prioritization. In most development organizations there is poor correlation between the actual expenditure of resources and key strategic priorities. The KRP system should provide data to support a formal process of project initiation, approval and prioritization.
The ability for top management to analyze this data helps ensure that overall organization effort is aligned with strategic business objectives and priorities. By grouping projects into numerous multiproject scenarios or portfolios, organizations have the ability to select the optimal mix of projects or initiatives, given the current or planned resource capacity. This top-down planning process reconciles project commitments with both its resource capacity and labor and budgeting requirements.
With the KRP model in place, the organization has for the first time a complete, closed-loop system for managing the total development work throughout the organization. The organization is now in a position to begin the process of balancing demand and capacity to improve overall effectiveness.
As projects enter the pipeline (as shown in Exhibit 3), the KRP process provides checks and balances demand and supply to make maximum and optimum use of skilled, finite resources. The result is that project delays and work gaps are minimized before they happen. With this new ability to balance resources with demand, an organization can keep from being its own worst enemy.
The result (as depicted in Exhibit 4) is an enhanced project portfolio, with key/strategic projects receiving more resources and the least important projects falling away. At a higher level, executives can select the project mix with the highest payoff within available or acquired resources.
Benefits of KRP. KRP enables organizations to take a proactive approach to management. This top-down planning process reconciles project commitments with resource capacity and labor and budgeting requirements. Some benefits are experienced immediately, others near term and long term. Access to enter-prisewide resource inventory reduces conflicts and improves execution.
Immediate Benefits. With visibility for the first time into what workers are actually doing, organizations can cancel, delay or reallocate work, based on priorities that are synchronous with corporate objectives. The payback is that the best people are placed on the most important jobs and there is less need for new talent.
In addition to enabling new processes, KRP streamlines and integrates existing planning processes. Budgeting, labor planning and management and project planning are no longer isolated, reducing double entry, disconnects and replanning.
Long-Term Benefits. KRP offers better planning and execution of every project. “What if” scenarios can help determine financial and strategic impact of new projects on current or planned project activities.
For example, Company A prioritizes and initiates project development activities based on fixed staffing levels. However, what happens hypothetically if its rival, Company B, comes out with a new product and management decides it must quickly develop a similar product in order to compete? A “what if” model can help determine which other projects should be delayed or canceled, or if additional skills should be hired to accommodate this new corporate objective.
Knowledge-Based Competitive Advantage. In an era when skilled professionals are increasingly scarce, it is imperative that organizations get the most out of the resources they have. Taking this new KRP approach toward solving a common problem offers opportunity for a knowledge-based competitive advantage over the competition.
AS THE IMPACT of Knowledge Resource Planning management spreads across the entire enterprise, organizations can improve product development, production schedules, recruiting, capital allocation, and ultimately, financial performance on shareholder value—literally turning knowledge into gold.
Reader Service Number 5093
